In insurance terminology, what is "moral hazard"?

Moral hazard refers specifically to the increased risk of loss that arises when an individual or entity engages in dishonest behavior, negligence, or takes risks because they are insulated from the consequences of those risks. This concept suggests that when people or businesses have insurance coverage, they may not act as cautiously as they would without it, knowing that the financial repercussions of their actions will be covered by the insurer.

In the context of the options provided, the focus on dishonesty or negligence clearly aligns with the definition of moral hazard, highlighting the behavioral aspect that affects risk. For example, if someone has insurance for their car, they may be less careful about locking it or parking it in a dangerous area, leading to a higher chance of theft or damage.

The other options address different types of risks, such as natural disasters or mitigation through good practices, but do not capture the essence of moral hazard, which is fundamentally linked to human behavior that can lead to increased risk because of a shift in responsibility or accountability.